Aranas Consunji & Barleta Law Offices

October 17, 2007 BIR RULING [DA-541-07] DA-637-06 Aranas Consunji & Barleta Law Offices Unit 106, Le Metropole Tordesilla Corner Dela Costa Sts. Salcedo Village, Makati City Attention: Jesus Clint O. Aranas Gentlemen : This refers to your letter dated September 24, 2007 requesting for confirmation of your opinion that the transfer or substitution of the registered owner appearing in the Condominium Certificates of Title from PANPISCO to Alrostim Corporation, Tres Alumnos Corp., Altimall corp., Rosmatim Corp., 2 Go Global International Corp., GMNK Global Ventures, Inc., GMNK Multi-Resources, Inc., Giminikko Corp., Venture Pacific Corp., Green Pacific Corp., Kinship & Friendship Distribution, Inc., Elanicole, Inc., Known Facts Distributors, Inc., Knowledge Finds Distribution, Inc., Rinarese, Inc., Dyworld, Inc., Creative Dytech, Inc., Dyduran, Inc., Gateway One Corp., Century Pacific Corp., Fulldome Ventures, Inc., Jatrina Prime, Inc., Mach 1, Inc., Faithman Resources, Inc., DRMilles, Inc., Ellebern, Inc., Kooper & Feldman Distributors, Inc. (hereinafter "Transferees") as the real and rightful beneficial owner of the relevant condominium units is not subject to income, capital gains, value added and documentary stamp taxes considering that there is no actual transfer of ownership over the said condominium units and such substitution is made without consideration. aTEHIC It is represented that on 20 March 2006, PANPISCO declared as property dividends in favor of Transferees two (2) parcels of land covered by Transfer Certificates of Title No. S-74244 and S-74799; that such property dividend declaration was confirmed to be not subject to tax in BIR Ruling No. DA-162-2006 dated 27 March 2006; that as a result of the said dividend declaration, Transferees effectively stepped into the shoes of PANPISCO as party to a joint venture with Megaworld Corporation for the development and construction of Greenbelt Park Place (hereinafter "GPP"); that accordingly, the distribution of the condominium units as its distributive share in the joint venture should have been made in favor of Transferees; that unfortunately, due to miscommunication with the Register of Deeds of Makati City, the Condominium Certificates of Title (CCTs) were erroneously issued in the name of PANPISCO instead of Transferees; that on this basis, you respectfully request for confirmation of your opinion that the transfer or substitution of the registered owner appearing in the Condominium Certificates of Title from PANPISCO to Transferees as the real and rightful beneficial owner of the relevant condominium units is not subject to income tax, capital gains tax, value added tax and documentary stamp tax considering that there is no actual transfer of ownership over the said condominium units; that such transfer or substitution will be accomplished by virtue of a Deed of Assignment to be executed by PANPISCO in favor of the Transferees. In reply, please be informed that the determining factor for the imposition of income tax is whether any gain or profit was derived from a transaction ( CIR vs. CA , G.R. No. 108576, January 20, 1999). There is no such gain or profit to talk about in this assignment of property since it is just a correction in the registration of ownership of property and there is no consideration involved. In BIR Ruling No. DA-236-02, the BIR ruled that "since the transfer . . . is not in connection with a sale . . ., no income will be generated and a fortiori , no income tax will be payable and collectible thereon (6 December 2002)." DHSACT Under Section 23 (D) (1) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, shall be taxed at the rate of 6% based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the said Code, whichever is higher (BIR Ruling DA-369-99 dated 25 June 1999). However, it was ruled in BIR Ruling DA-509-98, 19 November 1998 that, where there is no actual transfer of ownership over the property, the transaction is not subject to the 6% capital gains tax. On the basis of the foregoing, the deed of assignment to be executed between PANPISCO and Transferees, without monetary consideration and only for purposes that the registration of the CCTs may be corrected and transferred to the latter, is not subject to the 6% Capital Gains Tax. In BIR Ruling No. DA-637-06, 27 October 2006, it was held that: ESTCHa "since the above exchange transaction is without monetary consideration, and considering further that the execution of the deed of exchange is merely to correct a mistake , this Office is of the Opinion as it hereby holds that the aforementioned exchange of realties . . . is not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, amended. . . ." (Emphasis supplied) SIaHTD In addition to the foregoing, the deed of assignment is likewise exempt from value added tax since it does not partake of the nature of a sale or exchange of property primarily held for sale to customers or held for lease in the ordinary course of trade or business. In VAT Ruling No. 034-2001, dated 13 June 2002, it was held that the sale of real property may only be imposed the VAT provided that the same is primarily held for sale to customers or held for lease in the ordinary course of trade or business. The execution of the deed of assignment between PANPISCO and the Transferees is only necessary to correct the error in the registration of the CCTs and not to transfer property primarily held for sale or lease in the regular course of trade or business. As such, the same is not subject to the value added tax. Finally, Section 185 of Revenue Regulation No. 26, as amended, provides that: EcHIDT "Section 185. Conveyances without consideration . Conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable." In BIR Ruling No. 062-95 the BIR discussed the tax implication on a case of rectification of error, to wit: "In the instant case, however, there is no actual sale, exchange or disposition of real property in the aforesaid rectification of the Deed of Sale considering that the true vendees of the aforesaid realty were now being correctly indicated as the vendees in the said sale transaction, aside from the fact that no monetary consideration is involved in the said rectification of the Deed of Sale . . . the said rectification of the Deed of Sale is not subject to the . . . documentary stamp tax prescribed under Section 196 of the same Code." Accordingly, the transfer of the CCTs from PANPISCO to the Transferees is not subject to the documentary stamp tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon its investigation, it will be disclosed that the facts as represented are different, then this ruling shall be considered null and void. DEcTIS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service